lt technology services ltd Management discussions


1. BUSINESS PROFILE Overview

L&T Technology Services Limited (LTTS) is a leading global pure-play Engineering Research and Development (ER&D) services provider. The Company delivers consultancy, design, development, and testing services across the product and process development life cycle.

LTTS services and solutions include software and digital engineering, embedded systems, engineering analytics, and plant engineering. Its customer base includes 69 Fortune 500 companies and 57 of the worlds top ER&D companies across Transportation, Telecom & Hi-Tech, Plant Engineering, Industrial Products, and Medical Devices. Its engineers and technologists collaborate with leading global firms to drive smart solutions and services for new product development, facilitate remote asset management, and enable virtual product design and prototyping.

In the fourth quarter of the fiscal, LTTS crossed the milestone of USD One Billion revenue run rate, underscoring its dominant position amongst the leading global ER&D companies. The Companys robust growth trajectory continued to be defined by its key differentiators around deep, multi-vertical domain expertise, which enables value-maximizing customer-centric innovations across major industry segments.

LTTS is active across the following verticals:

Transportation: Driving New Growth

Paradigms for 8 of the Top 10 Global OEMs and Tier 1s

LTTS Transportation engineering services enable global OEMs and Tier 1s develop next-generation vehicles and aircraft, achieve faster time to market, and drive transformative innovation paradigms across their respective domains.

LTTS partners with global customers in the automotive domain leveraging its robust and reliable platform and solution offerings across key emerging areas, including, Electrical Vehicle (EV) technologies, Advanced Driver Assistance System (ADAS), and Autonomous Drive (AD).

The Company has over a decade of expertise in the Trucks and Off-highway segment and offers its services across Construction and Mining, Cranes and Material Handlers, Commercial Vehicles, Agricultural and Gardening Equipment, Powersports, and Polymer/Tire industries.

LTTS Aerospace offerings cover the widest spectrum across aero engines, aero structures and systems, avionics, air traffic management systems, and new-age digital transformation solutions. The company is helping Aerospace OEMs and Tier 1 manufacturers maximize ROI, meet compliance standards, and enhance quality.

Industrial Products: Revitalizing Product Journeys for 7 of the Top 10 Global Manufacturers

LTTS leverages its deep domain expertise in software, hardware, mechanical engineering, industrial networking protocols, IIoT, smart industry products, test frameworks, and enterprise control systems to support its growing customer base for Industrial Products worldwide. The results are translated into a robust presence across building automation, home and office product design, energy management, process control and machinery design.

The Company is also involved in driving global supply chain optimization to help customers explore alternate sourcing avenues in the post pandemic economy. With digital manufacturing emerging as a major focus area, LTTS is driving multi-layered digital transformation initiatives for customers to help unlock the true potential of emergent technologies in the Industry 4.0 ecosystem.

Telecom & Hi-Tech: Redefining Technology Journeys for 8 of the Top 10 Tech Majors

LTTS Telecom & Hi-Tech vertical delivers engineering services and solutions across five major domains, including, Telecom, Consumer Electronics, Semiconductors, Independent Software Vendors (ISVs), and Media & Entertainment (M&E).

The Company is also leveraging its extensive ER&D capabilities to enable leading Telecom OEMs and CSPs

across geographies, helping organizations unlock value from private networks for business applications.

Following its acquisition of L&Ts Smart World and Communication unit (SWC), LTTS is expanding its offerings across Nex-Gen Comms by driving significant network architecture, orchestration, and management capabilities. The SWC acquisition is also set to enhance LTTS new-age solutions around Sustainable Smart World, leveraging the global momentum in favor of smart spaces and integrated facilities.

The Company supports its semiconductor customers with a range of services covering hardware system design, platform software development, modem services, verification and validation, multimedia, connectivity, storage, mechanical engineering, and customer engineering facilities.

LTTS has long-standing partnerships with leading ISVs for cutting-edge VLSI, application engineering, cloud engineering, platform development and migration, product uplift and support, and testing and certification solutions. In M&E, the Companys offerings span product engineering, conceptualization, design and development, testing and certification, manufacturing support, maintenance, and value engineering.

The Company continues to explore and expand its partnership ecosystem with leading participants in the emerging OTT space to capitalize on the momentum generated by tectonic shifts in the global media consumption patterns.

Plant Engineering: Engineering Transformation for 7 of the Top 10 Global Firms

LTTS offers chip-to-cloud capabilities across designing, engineering, project management, handover operations, and delivery and maintenance of custom digital solutions for Plant Engineering customers. The Company is acknowledged as a leading global Engineering, Procurement, and Construction Management (EPCM) services specialist and supports stages across a plants lifecycle - from conceptualization to commissioning, leveraging a consulting-led framework built on years of expertise and specialization. LTTS multiple Value Engineering Centers across geographies help drive business success for its global customers.

The Companys digital solutions continue to enable manufacturers in their journey to upgrade, integrate, and

redefine their legacy operations with smart platforms, state-of-the-art connectivity, and deep synergies for delivering transformative business outcomes. As emergent technologies, including, AI/ML, AR/VR, and the Metaverse, reshape the plant engineering landscape, LTTS digital engineering capabilities are driving the transformation journey.

LTTS Plant Engineering vertical caters to diverse industries, including Consumer Packaged Goods, Chemicals, and Energy & Utilities.

Medical Devices: Revitalizing Wellness

Paradigms with the Top 10 Global Healthcare Leaders

Combining an industry presence of over three decades with multi-vertical engineering expertise, we work closely with leading healthcare providers and device manufacturers. This includes delivering solutions for remote medical care, regulatory compliances and approvals (QARA), in-vitro diagnostics, patient mobility solutions, surgical services, home healthcare, and the Medical Internet of Things (MIoT).

The Company leverages its digital engineering capabilities to accelerate product development cycles, reduce time to market, deliver sustained value engineering, and ensure seamless multi-geography compliant product launches for healthcare device manufacturers. Our offerings across digital health management and healthcare operations cover chronic disease management, remote monitoring, decision support, clinical workflow optimization, care collaboration portals, and health monitoring platforms.

LTTS continues to redefine the current medical product design methodologies with cutting-edge digital technologies, solutions, and platforms. Our efforts ensure business success for a global customer base through enhanced regulatory compliance, best-in-class quality, and revitalized operational paradigms.

2. BUSINESS ENVIRONMENT

The global Engineering Research and Development (ER&D) market is experiencing significant growth over the recent years. Zinnov estimates that ER&D spend patterns will remain resolute in the face of potentially adverse macro headwinds, growing at 6% CAGR by 2025, to reach a total of $ 2 Trillion. This underscores the importance of emerging technologies, including, AI, IoT, and 5G, among others.

The direct impact of these new-age offerings is evident in the rising demand for innovative solutions and translates into significant opportunities for global businesses looking to redefine and revitalize their product and service offerings.

This scenario is complemented by a continual rise in global demand for vehicle electrification, enhanced connectivity, digital products and solutions, smart manufacturing practices, state-of-the-art healthcare options, and a more sustainable approach to business operations. These key trends are reshaping the global ER&D landscape, driving new investment decisions, and defining business growth plans. A recent study by Bain & Co. indicates that an overwhelming number of business leaders across geographies and industries have plans to increase their ER&D spends despite the uncertain economic outlook. Digital engineering is projected to be the driver in this journey, growing 1.7X during the period (till 2025) and accounting for over 53% of global ER&D spends.

In addition, the renewed focus on new-age technologies has had a positive impact on ER&D off-shoring, especially for high-potential regions like India. Indias share as a destination for global ER&D spends continues on an upward trajectory. Leveraging the availability of a young and talented workforce, combined with the growing focus on innovation, we expect the current positive demand patterns to persist and strengthen.

The Indian ER&D sector is projected to be worth over USD 63 billion by 2025. As the nations largest ER&D services company, LTTS stands to benefit from its set of well-defined offerings and capabilities in unlocking new opportunities for a global customer base. Leveraging its credentials and capabilities as an innovation leader and industry bellwether, the Company continues to strengthen its robust growth trajectory by strengthening and revitalizing its robust value proposition for customers across industries and domains.

LTTS strengths and capabilities across the engineering and technology landscape is underscored in the ratings by key industry analysts, including, Zinnov, Everest, ISG, ARC, IDC, and NelsonHall. Each of these leading global analysts have consistently rated LTTS as a leader in various categories across technologies and geographies.

3. MAJOR ACHIEVEMENTS

Acquisition of Smart World & Communication

On January 12, 2023, LTTS announced that it had agreed to acquire the Smart World & Communication business unit of L&T. The move was designed to combine identified synergies and take new offerings in Next-Gen Communications, Sustainable Smart World, and Cybersecurity to the global market.

SWC has strong credentials in network design, planning, implementation, and management, including, Network Operation Centers (NOC), OSS work, Data Center, Cloud/ private 5G - driving end-to-end network connectivity and public safety projects such as TANFINET. The Company also brings capabilities around public safety, smart cities, critical infrastructure, and smart metering, along with the L&T Fusion Platform and the Integrated Command and Control Center (IC3). They have implemented mega safety projects in Mumbai, Hyderabad, and Nagpur where tens of thousands of devices including cameras and network equipment have been implemented for city level surveillance, helping architect, conceptualize, and implement smart metering in states like Uttar Pradesh, Haryana, Delhi to the tune of 6 million meters. SWCs capabilities in cybersecurity include Full Lifecycle Threat Management capabilities with offerings across risk assessment, threat monitoring, security architecture, design and DevSecOps. The combined teams today can deliver Security Operating Centers (SOCs), OT cybersecurity, and product security credentials.

Following customary approvals and other necessary formalities, the acquisition closed on April 1, 2023

Order Wins

During the fiscal, LTTS registered several major deal wins across all its verticals. Large deal bookings were also high, led by two marquee deals of TCV USD 50 Million and USD 60 Million, and several engagements over USD 10 Million. Leveraging its capabilities and robust global pipeline, the Company exceeded the USD One Billion revenue run rate in the fourth quarter of the financial year.

Transportation

• A leading North American rail transportation major awarded LTTS a multi-million contract to support them in fleet modernization across areas of vehicular control, simulation technology, Next Gen Communications, Cybersecurity and the integration

of latest technology components into the core logistics platform for the customer.

• Selected as a preferred engineering partner for a global aerospace and rail majors technology unit in Canada. LTTS will offer end-to-end integrated engineering across products, operations and 5G driven next-gen connectivity solutions.

• Strategic engineering partner to Airbus for providing Advanced Engineering Capabilities and Digital Manufacturing Services under a multi-year contract.

• Selected by a US-based Off-highway equipment OEM as its strategic partner to develop capabilities around Embedded Software, Control Systems, and Software Verification/Validation Engineering.

• 5-year, multi-million-dollar deal from BMW to provide high-end engineering services for the companys suite of infotainment consoles in its family of hybrid vehicles.

• Chosen by a global technology company as its preferred technology partner for developing robust testing and accelerator frameworks for its embedded systems.

• Empanelled as a preferred engineering partner to support a global manufacturer in their key technology areas, including, E-Drives, E-Axles, Chassis Mechatronics solutions, Future Engine Technologies, and Hybrid Transmission.

• Multi-year engineering program for a US-based new-age EV OEM, encompassing energy storage systems, battery structures & BMS integration, and design support to help the customer launch its new line-up of electric vehicles.

• LTTS is setting up an engineering centre of excellence for a leading automotive mobility companys AutoSAR and functional safety-based software development activities.

• A leading Swedish OEM has awarded a V&V Engagement to support their Underground Mining & Rock Excavation (UMR) division globally. This involves all end-to-end development and testing activities including HIL/SIL across products, technologies, and regions.

• LTTS has been selected by a North American Auto OEM to support their vehicle & sub system level- based HIL test development, test automation, debugging and test execution for ADAS, EV & vehicle network components.

• Two deals from an international auto components manufacturer to undertake end-to-end engineering work for their hardware, drive mechanical engineering programs, and support application development.

Industrial Products

• Engineering partner for a global O&G major for niche engineering and technology support to help the customer expand its market share.

• Preferred partner for the digital transformation of a large Swedish food processing and packaging companys integrated content management system to drive standardization and compliance.

• Multi-year product sustenance program for a large European material handling and logistics automation company to drive lifecycle maintenance of some of the legacy products while helping innovate and introduce new products using digital technologies.

• Chosen as an engineering partner by a global provider of industrial automation, for end-to-end product design, firmware development services, and the development of automation platforms.

• LTTS has been onboarded by a leading US-based provider of operations and maintenance services for the production of electricity and desalinated water. As a part of the engagement, the Company will setup Edge-to-Cloud infrastructure for the ingestion of the customers equipment data to their loT cloud infrastructure across 24 plants worldwide.

Telecom and Hi-Tech

• LTTS will expand its R&D lab in Bangalore and engineering team globally to support a North America based customer for software integration, validation and debugging of hardware products.

• LTTS has won a strategic deal from an American Telecom infrastructure company to accelerate

product development, set up new lab infrastructure and provide engineering services for its 5G ORAN program.

• Selected by a US-based technology company for developing safety libraries and embedded firmware implementation for its family of chipsets. The engagement includes LTTS software safety qualifications, CSP generation, architecture, and software components design.

• Onboarded by a leading network solutions provider to build, operate and manage a 5G radio testing lab for end-to-end test services on ORAN networks, including lab operations and management services.

Plant Engineering

• Multi-year agreement with a leading

energy conglomerate to provide consulting, implementation, and sustenance of Asset Integrity across the customers major assets.

• Upgrading the digital dashboards with responsive and interactive UX across multiple platforms for a leading chemical manufacturing company.

• A large Industry 4.0 deal from a leading

multinational food and beverage company to

improve operational efficiencies by re-engineering centralized maintenance operations.

• Implementing digital twin at the flagship site of

an American chemicals and specialty materials

producer.

• I mplementing digital twin across all existing the US refineries of an US-based O&G major.

• Multi-year deal from an American energy company to be their primary engineering partner for two of its existing refining sites. LTTS will provide engineering services including systemization, circuit design, full process & corrosion review, risk-based inspection and validation of equipment and inventory.

• LTTS bagged two multi-year plant engineering contracts from a global food processing company to provide plant engineering design services for the clients upcoming facilities in Europe & help the customer meet local demand and expand its market share.

Medical Devices

• Multi-year engineering program from a medical devices leader for its product line.

• Data engineering program for a global healthcare provider to track and monitor the execution of triage and vigilance preparation to help accelerate productivity and reduce training costs.

• Program to help an international healthcare firm harmonize and streamline their QMS systems across North America, covering support across R&D, product quality, manufacturing, and supply chain management.

• Driving the greenfield facility of a leading medical technology company in Mexico, involving manufacturing transfer of systems and component lines. The program entails developing future state layout, value stream mapping, process validation and quality documentation remediation for the site.

4. SIGNIFICANT INITIATIVES

LTTS has continued to invest significant time and effort in strategic initiatives that will propel its technology footprint, engineering infrastructure and human resources, with the objective to provide a differentiated experience to its customers.

• The Company expanded its global footprint with the launch of a new engineering research & development (ER&D) center in Toronto, Canada, two new design and prototyping centers in Peoria, USA, and a center of excellence in Pune, India.

• The Company unveiled its Engineering Research and Development (ER&D) center in Krakow, Poland, to cater to customers in Automotive, Mobility and Hi-Tech domains. The ER&D center will support major customers in Europe and North America.

• LTTS inaugurated its Engineering Design Centre (EDC) in Toulouse, France, to cater to the new age digital requirements of the global aerospace and defense sectors. The center will specialize in end-to-end solutions for aerospace design & manufacturing.

• LTTS is collaborating with Qualcomm Technologies, Inc., is to deploy end-to-end solutions for the global 5G Private Network Industry utilizing their combined core expertise in the Hi-Tech & Telecommunication domain.

• LTTS, in collaboration with ISG and with CNBC TV18 as media partner, initiated the first ever Digital Engineering Awards to recognize and honor engineers and organizations at a global level for their pioneering work to promote engineering services and technology innovation. The inaugural edition of the Digital Engineering Awards attracted over 120 applications from more than 70 global organizations across North America, Europe, and Asia Pacific, active in the Automotive, Aerospace, Industrial Products, Plant Engineering, Telecom and Hi-Tech domains.

5. ENVIRONMENT, HEALTH & SAFETY

LTTS has a vision of "engineering a sustainable tomorrow through technology and innovation." We are committed to the creation of a sustainable world by minimizing environmental impact, maximizing social outreach, and offering sustainability focused solutions.

The Company has committed to become carbon and water neutral in its operations by 2030. We have aligned our climate mitigation targets with SBTi goals to limit global warming to 1.5?C. LTTS ESG initiatives continue to build on our core ideals, helping drive an ethically progressive and reliable business that is robust enough to meet emerging challenges while being beneficial for all current and future stakeholders

LTTS is undertaking various focused initiatives around water and energy conservation, besides expanding its social outreach. These include:

I ntegrated Watershed Management Project in Tamil Nadu: LTTS has constructed water harvesting structures, including, check dams and village ponds to help the parched rural regions of Tamil Nadu. The Company also setup a threshing yard and training camps to help the residents in these regions.

Water Conservation for Agricultural Productivity: LTTS has partnered with the Aga Khan Rural Support Program (India) to support a multipronged water conservation and irrigation initiative in southern Gujarat - a region which faces severe water crisis every year. Activities undertaken included the installation of solar lift irrigation pumps, plantation of 3,220 mango saplings and the development of multipurpose farm ponds for fishery and vegetable cultivation. Additionally, over 32,000 saplings were planted to promote biodiversity in the region.

Toward an Electrifying (and Sustainable) Future: As a part of its commitment to a sustainable and greener future, LTTS has operationalized solar powered EV charging stations at its Vadodara center.

Other initiatives: Volunteers from LTTS Vadodara and Mysuru came forward to collect solid waste across a stretch of about 2 KM around the identified meeting points in both the cities. Plastic waste was collected separately. The activities at the two locations led to a cumulative collection of 475 Kg of waste, with 140 hours of volunteering activity being clocked.

On the safety and health front, all LTTS facilities, except Pune, which is a recently opened facility, are now ISO 14001 & ISO 45001 certified locations. Further, to ensure the continued well-being of its employees, the Company conducted several yoga and meditation sessions during the fiscal, organized health camps, inaugurated wellness centers for its female employees, and ran regular awareness and information campaigns around waste management, carbon reductions, and natural resources usage.

6. RISKS & CONCERNS

LTTS is engaged in the export of engineering and designing services to customers in North America, Europe, Middle East, Japan, Korea, and other APAC countries. Our multi-geography operational paradigm exposes us to potential challenges of uncertain and ever-changing business environment across these key territories.

The Company has adopted a Risk Management framework for the assessment, monitoring, and treatment of risks identified. The framework is administered by the Enterprise Risk Management organization, and covers various company operations and risk categorisations, including, strategic, reputation, operational, financial, and compliance risks. LTTS analyses and manages risks at multiple levels, at the enterprise, business unit, and project levels, using a top- down and bottom-up strategy.

The increasing prevalence of cyber-security threats, including, incidents of data leakage and malware/ ransomware attacks pose a major risk for global organizations like LTTS. Heightened levels of geopolitical tensions could also lead to an exaggeration of

such cyber-threats. LTTS has taken mitigation measures for this risk as one of the major programs for upgradation of IT infrastructure and policies.

There were concerns regarding higher attrition rates across the industry, which had the potential to hamper the Companys ability to provide high quality and uninterrupted services to clients. Record high level inflation and margin pressures in client geographies was another source of risk which could potentially result in deceleration in R&D spend growth. Exchange rate fluctuations, additionally, could add to the volatility in margins.

The key risks for the Company, and the mitigation plans for the same, are listed below:

Key Risks Mitigation
In the fast-evolving technology landscape, there is a continuous risk to the confidentiality, integrity, and availability of LTTS systems and company data. This is due to the rise in cybersecurity threats, combined with a marked shift toward hybrid work models. • Cyber risks are managed through multi-layered controls, including, the implementation of a comprehensive governance program across the Company. This is an integral part of LTTS corporate governance and risk management structure.
• Cyber Security controls include proactive threat detection and response, brand monitoring, and deep & dark web monitoring stringent policies, processes and controls (preventive, detective, and corrective). This helps ensure timely resolution of incidents.
• LTTS continue to be certified against the Information Security Management System (ISMS) Standard ISO 27001:2013. Additionally, we have also been assessed for TISAX by independent audit firms.
Increased attrition levels in line with trends observed in the industry • Attrition rates are actively monitored by the company and benchmarked with industry peers.
• Measures of employee engagement and professional enrichment are being implemented, including, focused retention of critical employees, longevity bonuses, executive certification programs, new relocation opportunities, etc.
• The Company provides internal career growth opportunities to its existing talent pool through the process of internal job postings across locations and business units.
Inability to innovate and develop new services and solutions to keep up with customer expectations and evolving technologies which could result in lower growth traction • LTTS Global Engineering Academy (GEA) is an integral enabler for its engineer fraternity. The GEA, a one-of-its- kind initiative, is engaged in training and equipping young workforce with the latest technologies and skills, helping prepare them to be counted amongst the best in the industry.
• Over the years the Company has been making consistent investments in innovation labs, including, design tear down labs, digital and communication labs, design studios, automotive labs, electrical and power labs, environmental and testing facilities, etc. Continuous competency and capability building in leading edge technologies, supported by the investments in labs and Centers of Excellence prepares the Company to address changing customer requirements.
• Our focus is on driving innovation and the development of solutions and accelerators to reduce time-to-market for customers.
Key Risks Mitigation
Exchange rate volatility could materially and adversely impact results of operations • As a global company, our revenues are distributed across multiple currency, viz. US Dollar, Euro, INR, etc. This provides a natural hedge against currency risks from any particular region to the Company.
• Long term cash flow hedges are undertaken to minimize the impact of exchange rate volatility.
• The Company undertakes a regular evaluation of hedging policy by internal Risk Management Team to assess its continued effectiveness.
Risk of inadequate protection of intellectual property rights of our customers can lead to reputational damage and litigation • LTTS conducts regular employee awareness sessions on the applicable code of conduct to create awareness of confidentiality and secrecy of sensitive information.
• Implementation of appropriate data security controls to prevent unauthorized access and/or data transfer.
• Strict physical access controls for employees across customer delivery centers and secure areas.
• Regular internal audits to comply with customer requirement of confidentiality and data protection.
Changes in immigration laws, rules and policies can impact our ability to provide services to customers at foreign locations • Dependency on work visas reduced though local hirings at multiple onsite locations.
• Improvement of internal processes on visa filing through proactive engagement with legislative and regulatory stakeholders.
• Regular internal audits to monitor compliance with applicable immigration laws and rules.
Risks arising due to changes in customer business operations to be more sustainable and environment friendly. Rising risk from inadequate communication on the Companys Sustainability program • The Company has made Sustainability related offerings as one of its 6 major growth engines (6 Big Bets). Adequate business focus and investments are being made in this sector to match customer requirements and the changing scenario to provide new and sustainable products and services.
• LTTS has committed to become Carbon and Water Neutral by 2030 and to align our climate mitigation targets in line with SBTi to limit global warming to 1.5?C. Various initiatives to achieve these commitments are under way.
• We are continuously improving our Sustainability Reporting maturity, besides participating in various sustainability assessments and rating evaluations to fulfil the communication requirements of various stakeholders.
Risk arising from legislations like GDPR in Europe carrying severe consequences for non-compliance or breach. Also, other countries have enacted or are enacting their Data Privacy regulations to ensure protection of personal data. • LTTS is addressing data privacy compliance requirements by implementing policies and procedures to comply with the provisions brought in by existing and upcoming laws on data protection in different countries and regions, including, the EU, USA, and India.
• The Company has developed and implemented a personal data breach response and mitigation plan to comply with applicable data protection laws.
• LTTS has developed data transfer guidelines and adheres with the cross-border data transfer mechanism in compliance with relevant regulatory requirements.
Key Risks Mitigation
Risk arising from the volatility in global economics and Geo-political factors, as the Company has global operations. Further there would also be certain segments that may face cyclical downturns • LTTS has diversified operations across multiple geographies, covering the Americas, Europe, and the Rest of the World.
• The Company has a well-diversified portfolio of customers and revenue-mix spread across multiple business units. Business augmentation through cross-selling across industry segments helps the company to capitalize its technological expertise and capabilities, thereby limiting dependence on any particular industry segment.
• Diversification of revenue mix covering different segments and geographies, as captured in the two previous points, addresses the risk of cyclical downturn.
• LTTS actively monitors the risk of client and market concentration and the risk of dependency on top customers.
• The Company has location-wise crisis management and business continuity teams, with a tested and ongoing WFH/ WFX program to ensure streamlined operations.
• LTTS has a counter-party screening process to ensure compliance with applicable global best practices.

Update on the inquiry conducted by the U.S. Department of Justice:

In the month of March 2023, LTTS completed the ongoing inquiry with the U.S. Department of Justice through a settlement payment of $9.9 Million. The settlement resolves the claims in whole. There was no determination of liability or an admission of guilt.

7. OUTLOOK

As the nations largest pure-play ER&D services provider, LTTS registered a constant currency growth of 16% during the fiscal. This is built on top of its stellar 20% growth achieved during FY22. Digital and emerging technologies were a key driver on this journey and constitute our focus for the future as we move beyond the Billion Dollar revenue milestone.

Our industry-leading performance continues to be defined by significant investments across emerging technology areas, including the 6 Big Bets - Electric Autonomous & Connected Vehicles (EACV), Nex-Gen Comms, MedTech, Digital Products & AI, Digital Manufacturing, and Sustainability. We are witnessing significant traction across each of these focus areas, with several marquee deal wins in the global markets.

LTTS Q4 FY23 acquisition of L&Ts Smart World and Communication business is expected to be a major enabler in strengthening our digital-focused growth journey. SWC has a proven track record of delivering innovative solutions in the areas of next-gen communications, sustainable smart world, and cybersecurity - core capabilities in alignment with three of LTTS 6 Big Bets. LTTS is well poised to leverage these offerings in the global markets, expanding our footprint further into the

Middle East, APAC, US, and Europe as multiple countries and organizations scale their investments in a smart and sustainable future.

Our deep engineering and domain expertise drives innovation across cutting-edge devices, evolved manufacturing practices, and state-of-the-art products and services. The Companys domain expertise and commitment to technology excellence is highlighted in the recent milestones of filing over 1,000 patents.

The Companys demand patterns continue to be healthy in the face of potential global headwinds from adverse macro conditions. In Transportation, demand is being driven by electrification, connected cars, and next- generation digital cockpits. We are also witnessing increased demand for cybersecurity as a part of the software development platform engagements being undertaken by our teams. For Industrial Products, the focus is on digital twins and sustainability-driven product development, innovation, and research. We anticipate robust demand in digital manufacturing to support automation and software platform development, helping improve equipment performance and reliability.

I n the Telecom & Hi-Tech vertical, we are seeing growth in 5G lab-as-a-service, network engineering, and

cybersecurity. With SWC, we now have an end-to-end capability enabling us to address 5G in a much more meaningful manner and expand addressable markets across multiple segments and tap into the potential of large future spends, like Sustainable Spaces. Again, as customers look to enhance efficiency, we are also seeing cost takeout deals in the pipeline, giving us an opportunity to consolidate and provide greater value to our stakeholders.

For Plant Engineering, key drivers of demand include the growing need for the localization of supply chains and sustainability in operations, including, energy, water and waste management leading to greenfield/brownfield expansions. In the O&G and Chemical sub-segment, customers continue to redefine their product mix leading to an enhanced scope for design and digital engineering projects. And in the Medical Devices domain, demand continues to be driven by connected devices and digital health platforms, cybersecurity, regulatory compliance, and QARA.

LTTS is present in over 20+ countries worldwide, and we are adding talent and capabilities across the focus geographies as a part of our continued commitment to drive global expansion. The Company has inaugurated new centers in Europe (Krakow, Poland and Toulouse, France) and North America (Toronto, Canada) and expanded existing facilities in Peoria, USA.

LTTS continues to pursue new partnerships with leading global organizations to redefine and revitalize the digital journeys of its customers across industries and geographies, reaffirming its vision of "Engineering a Sustainable Tomorrow through Technology and Innovation."

8. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

LTTS has designed its internal control systems commensurate with the size and complexity of its business. The internal control system comprises all policies and procedures that when taken together, support the Companys effective and efficient operation.

We have implemented internal controls that deal with system automation, authorizations, access restrictions, physical security, etc., for providing reliable financial and operational information to the relevant stakeholders at the right time.

9. SIGNIFICANT FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Global ER&D spending, the quantum of ER&D outsourcing to third party vendors, and LTTS ability to develop and deliver competencies that address the needs of its customers are the key drivers of the Companys growth paradigm.

On the operational front, LTTS performance depends on its continued ability to command higher bill rates for its offerings, effective talent management initiatives, skilling and retention of high quality resources, utilization rate of billable employees, onsite-offshore revenue mix (since profit margins are typically higher if work is performed offshore), and the management of foreign exchange volatility risks (as a significant portion of business is billed in currencies like USD and EUR).

From a regulatory and compliance standpoint, the Companys business sustainability involves protecting the confidentiality and intellectual property rights of customers and being compliant to the local regulations that include immigration and data protection laws in every country we are present in.

10. FINANCIAL PERFORMANCE

This part of the Management Discussion and Analysis refers to the consolidated financial statements of LTTS and its subsidiaries, referred to as the "Group." The financial statements and related notes to the consolidated accounts of LTTS for the year ended March 31, 2023 are prepared in accordance with the Indian Accounting Standard (referred to as "Ind AS"), prescribed under Section 133 of the Companies Act, 2013, and read with the Companies (Indian Accounting Standard) rules as amended from time to time.

Refer to the Standalone and Consolidated financial statements in Annual Report for detailed schedules and notes.

A. FINANCIAL PERFORMANCE HIGHLIGHTS Revenue Trend

Revenue from operations for the year ended March 31, 2023 increased 22.0% YoY to Rs. 80,136 Mn from Rs. 65,697 Mn for the year ended March 31, 2022, while CAGR growth over the past 4 years is 12.1%.

Revenue trend for last 5 financial years:

Operating profit trend

Operating profit for the year ended March 31, 2023 increased 23.2% YoY to Rs. 14,792 Mn from Rs. 12,005 Mn for the year ended March 31, 2022, while CAGR growth over the past 4 years is 16.2%.

Operating margin for the year ended March 31, 2023 increased by 20 bps to 18.5% from 18.3% for the year ended March 31, 2022.

Operating profit (in Mn) and operating margin % trend for last 5 financial years*:

 

* Absolute numbers represent operating profit (in Mn). % numbers represent operating margin.

Earnings per share trend

Earnings per share (basic) for the year ended March 31, 2023 increased 21.9% YoY to Rs. 110.8 in from Rs. 90.9 for the year ended March 31, 2022, while CAGR growth over the past 4 years is 10.6%.

Earnings per share trend for last 5 financial years:

Free cash flow trend

Free cash flow for the year ended March 31, 2023 increased 33.1% YoY to Rs. 1 1,325 Mn from Rs. 8,507 Mn for the year ended March 31, 2022. CAGR growth over the past 4 years is 12.1%.

Free cash flow and its % to net income trend for last 5 financial years*:

 

*Absolute numbers represent free cash flow (in Mn).

% numbers represent free cash flow as a % of net income.

B. FINANCIAL CONDITION

1. SHARE CAPITAL

(Rs. in million)

Particulars As at As at
March 31, 2023 March 31, 2022
Authorised:
5,250,000,000 equity shares of Rs. 2 each

(Previous year 5,250,000,000 equity shares of Rs. 2 each)

10,500 10,500
Issued, subscribed, and fully paid up
105,608,142 equity shares of Rs. 2 each 211 211
(Previous year: 105,532,167 equity shares of Rs. 2 each)
Total 211 211

The authorized share capital of the Company as at March 31, 2023 was Rs. 10,500 million divided into 5,250 million equity shares of Rs. 2 each. The issued, subscribed and paid-up capital as at March 31, 2023 was Rs. 211 Million divided into 105.6 Million equity shares of Rs. 2 each. (As at March 31, 2022: Rs. 211 Million divided into 105.5 million equity shares of Rs. 2 each).

There were no changes in the authorized share capital during the year.

2. OTHER EQUITY (EXCL. NON-CONTROLLING INTEREST)

The other equity of the company as at March 31, 2023 stood at Rs. 49,298 million as against Rs. 41,414 million as at March 31, 2022. Breakup of other equity is as below: -

(Rs. in million)_

Particulars As at March 31, 2023 As at March 31, 2022
Retained Earnings 36,244 27,713
Securities Premium 11,462 11,396
Hedging Reserve 296 1,896
Employee share options outstanding (Net of deferred compensation) 938 187
Foreign Currency Translation reserve 451 225
Other items of other comprehensive income (93) (3)
Total 49,298 41,414

Retained Earnings

The retained earnings of the company as at March 31, 2023 stood at Rs. 36,244 Million as against Rs. 27,713 Million as at March 31, 2022. Movement in retained earnings was primarily on account of profit earned during the year offset by dividends declared.

Securities Premium

The securities premium balance as at March 31, 2023 stood at Rs. 11,462 Million as against Rs. 11,396 Million as at March 31, 2022. Increase in securities premium is mainly on account of exercise of ESOPs.

Hedging Reserve

Hedging reserve relates to financial derivatives used for risk management strategy of the company.

The balance in hedge reserve (net of tax effect) as at March 31, 2023 is credit balance of Rs. 296 Million as against Rs. 1896 Million as at March 31, 2022.

Foreign currency translation reserve

The foreign exchange differences arise from the translation of financial statements of foreign operations with functional currency other than Indian rupees.

The foreign currency translation reserve balance as at March 31, 2023 stood at Rs. 451 Million as against Rs. 225 Million as at March 31, 2022.

Employee share options outstanding (Net of deferred compensation)

The amount of stock option outstanding as at March 31, 2023 stood at Rs. 938 Million as against Rs. 187 Million as on March 31, 2022. It represents cumulative expense to be recognized until the employee share options are vested/expired upon which such amount is transferred to profit and loss.

Other items of other comprehensive income

The amount of other items of other comprehensive income as at March 31, 2023 is debit balance of Rs. 93 Million as against a debit balance of Rs. 3 Million as on March 31, 2022. It represents movement due to remeasurements of defined benefit plans (net of tax effect) based on actuarial valuation.

3. NON-CURRENT FINANCIAL LIABILITIES

Non-Current financial liabilities as at March 31, 2023 stood at Rs. 3,896 Million as against Rs. 4,550 Million as at March 31, 2022. It mainly includes below:

Lease Liabilities

Lease liability as at March 31, 2023 stood at Rs. 3,731 Million as against Rs. 4,276 Million as at March 31, 2022. Decrease in lease liability is on account of conversion of non-current liability into current liability.

Other Financial Liabilities

Other Financial Liabilities as at March 31, 2023 stood at Rs. 165 Million as against Rs. 274 Million as at March 31, 2022. Decrease in other financial liability is on account of derivative financial instruments.

4. NON-CURRENT PROVISIONS

Provisions as at March 31, 2023 stood at Rs. 52 Million as against Rs. 56 Million as at March 31, 2022. It includes provisions pertaining to post-retirement medical benefits.

5. CURRENT FINANCIAL LIABILITIES

Current financial liabilities as at March 31, 2023 stood at Rs. 9,915 Million as against Rs. 8,413 Million as at March 31, 2022. It mainly includes below:

(Rs. in million)

Particulars As at March 31, 2023 As at March 31, 2022
Trade payables

- Due to micro enterprises and small enterprises

95 31
- Due to others 4,410 3,903
Lease liabilities 811 495
Other financial liabilities 4,599 3,984
Total 9,915 8,413

Trade Payables

Payables to micro and small enterprises as at March 31, 2023 stood at Rs. 95 Million as against Rs. 31 Million as at March 31, 2022.

Payables to others as at March 31, 2023 stood at Rs. 4,410 Million as against Rs. 3,903 Million as at March 31, 2022. It also includes payable to related parties. Increase in trade payables is on account of growth in business operations.

Lease Liabilities

Lease liability as at March 31, 2023 stood at Rs. 811 Million as against Rs. 495 Million as at March 31, 2022. Increase in lease liability is on account of net addition in premises taken on lease.

Other financial liabilities

Other financial liabilities as at March 31, 2023 stood at Rs. 4,599 Million as against Rs. 3,984 Million as at March 31, 2022. It mainly includes liability towards employee benefit expenses, derivative financial instruments, capital creditors etc. The increase in liability is majorly on account of increase in year-end liabilities towards employee benefit expenses.

6. OTHER CURRENT LIABILITIES

Other current liabilities as at March 31, 2023 stood at Rs. 2,746 Million as against Rs. 2,583 Million as at March 31, 2022. It mainly includes unearned revenue, liability towards employee car scheme etc.

7. CURRENT PROVISIONS

Provisions as at March 31, 2023 stood at Rs. 1,313 Million as against Rs. 1,896 Million as at March 31, 2022. It mainly includes provisions pertaining to employee benefits such as post-retirement medical benefits, gratuity. However, provision pertaining to legal matter as at March 31, 2022 has been concluded in current financial year.

8. NON-CURRENT ASSETS (OTHER THAN NON-CURRENT FINANCIAL ASSETS AND DEFERRED TAX ASSETS)

The Non-current assets (other than non-current financial assets and deferred tax assets) as at March 31, 2023 stood at Rs. 13,005 Million as against Rs. 12,926 Million as at March 31, 2022. It mainly includes below:

(Rs. in million)

Particulars As at March 31, 2023 As at March 31, 2022
Property, plant and equipment 2,760 2,324
Right-of-use assets 3,777 4,073
Capital work-inprogress 65 99
Goodwill 6,010 5,881
Other intangible assets 393 549
Total 13,005 12,926

Property, plant, and equipment

The gross block of Property, plant, and equipment as at March 31, 2023 stood at Rs. 6,492 Million as against Rs. 5,232 Million as at March 31, 2022.

Additions during the year ended March 31, 2023 stood at Rs. 1,550 Million, mainly comprising of Rs. 744 Million towards computers, Rs. 495 Million towards laboratory equipment, Rs. 161 Million towards office and other equipment, Rs. 104 Million towards vehicles and Rs. 46 Million towards leasehold improvements. Disposals during the year ended March 31, 2023 stood at Rs. 303 Million. The net block of Property, plant, and equipment as at March 31, 2023, stood at Rs. 2,760 Million as against Rs. 2,324 Million as at March 31, 2022.

The Company has been investing in infrastructure facilities in line with business growth requirements.

Right of use assets

The gross block of Right of use assets as at March 31, 2023 stood at Rs. 6,504 Million as against Rs. 6,220 Million as at March 31, 2022. Net addition during the year ended March 31, 2023 stood at Rs. 254 Million.

Capital work in progress (Capital WIP)

Capital WIP as at March 31, 2023 stood at Rs. 65 Million as against Rs. 99 Million as at March 31,2022. It mainly includes work in progress pertaining to infrastructure facilities.

Goodwill

The carrying value of goodwill as at March 31, 2023 stood at Rs. 6,010 Million as against Rs. 5,881 Million as at March 31, 2022.

Increase in carrying value of goodwill is basically on account of foreign currency translation. Goodwill have been tested for impairment.

Other intangible assets

The gross block of other intangible assets as at March 31, 2023 stood at Rs. 4,026 Million as against Rs. 3,964 Million as at March 31,2022. It mainly includes specialized software, technical knowhow, tradename etc.

9. NON-CURRENT FINANCIAL ASSETS

Non-current financial assets as at March 31, 2023 stood at Rs. 2,799 Million as against Rs. 3,225 Million as at March 31, 2022. It mainly includes below:

Non-current financial assets: Investments

Non-current investments as at March 31, 2023 stood at Rs. 1,752 Million as against Rs. 861 Million as at March 31, 2022. The increase is mainly on account of investment in non-convertible debentures and corporate deposits.

Non-current financial assets: Others

Other non-current financial assets as at March 31, 2023 stood at Rs. 1,047 Million as against Rs. 2,364 Million as at March 31, 2022. It mainly includes security deposits, fixed deposits with maturity more than 12 months and non-current derivative financial instruments. Decrease is on account of maturity of fixed deposits and derivative financial instruments.

10. OTHER NON-CURRENT ASSETS

Other non-current assets as at March 31, 2023 stood at Rs. 1,821 Million as against Rs. 1,370 Million as at March 31, 2022. It mainly includes prepaid expenses and income tax receivables. Increase is mainly on account in income tax receivable.

11. CURRENT FINANCIAL ASSETS

Current financial assets as at March 31, 2023 stood at Rs. 47,458 Million as against Rs. 40,183 Million as at March 31, 2022. It mainly includes below:

(Rs. in million)

Particulars As at March 31, 2023 As at March 31, 2022
Investments 21,088 13,918
Trade receivables 17,301 16,959
Cash and cash 5,346 2,347
equivalents
Other bank balances 1,553 4,395
Other financial assets 2,170 2,564
Total 47,458 40,183

Investments

To achieve the goal of capital preservation, liquidity and optimization of returns, the Company makes investments after considering counterparty risks based on multiple criteria including Tier I capital, capital adequacy ratio, credit rating, profitability, NPA levels and deposit base of banks and financial institutions.

Investments as at March 31, 2023 stood at Rs. 21,088 Million as against Rs. 13,918 Million as at March 31, 2022. It mainly comprises of investment which are measured at fair value through profit and loss (FVTPL) i.e., mutual funds and investment measured at amortised cost i.e., corporate deposits, non-convertible debentures, commercial papers, and certificate of deposits.

The increase in investment is mainly on account of investment of free cash flow generated from business operations.

Trade Receivables

Trade receivables (net of allowance for doubtful debts) as at March 31, 2023 stood at Rs. 17,301 Million as against Rs. 16,959 Million as at March 31, 2022.

Allowance for doubtful debts as at March 31, 2023 stood at Rs. 290 Million as against Rs. 250 Million as at March 31, 2022.

The days sales outstanding stood at 79 days as at March 31, 2023 as compared to 94 days as at March 31, 2022.

Cash and Cash equivalents

Cash and cash equivalents as at March 31, 2023 stood at Rs. 5,346 Million as against Rs. 2,347 Million as at March 31, 2022. It mainly includes bank balances maintained in Indian and foreign bank accounts, fixed deposits with maturity less than 3 months, remittance in transit and cheques on hand. Increase in cash and cash equivalents is on account of fixed deposits having maturity less than 3 months.

Other Bank balances

Other bank balances as at March 31,2023 stood at Rs. 1,553 Million as against Rs. 4,395 Million as at March 31, 2022. It mainly includes fixed deposits having maturity more than 3 months but less than 12 months and earmarked balances with banks pertaining to unclaimed dividends. Decrease in other bank balances is on account of fixed deposits having maturity less than 3 months (moved to cash and cash equivalents).

Other Financial Assets

Other financial assets as at March 31, 2023 stood at Rs. 2,170 Million as against Rs. 2,564 Million as at March

31, 2022. It mainly includes unbilled revenue (pertaining to time and material contracts), derivative financial instruments, advance to employee, security deposits, loans and advances to related parties etc.

The decrease is mainly on account of derivative financial instruments which moved from Rs. 1,048 Million as at March 31, 2022 to Rs. 331 Million as at March 31, 2023 and unbilled revenue which moved from Rs. 1,049 Million as at March 31, 2022 to Rs. 968 Million as at March 31, 2023 offset by increase in loans and advances to related parties which moved from Rs. 331 Million as at March 31, 2022 to Rs. 761 Million as at March 31, 2023.

12. OTHER CURRENT ASSETS

Other current assets as at March 31, 2023 stood at Rs. 3,952 Million as against Rs. 3,068 Million as at March 31, 2022. Other current assets mainly consist of advance to suppliers, service tax/GST receivable, unbilled revenue (fixed price contracts) etc.

The increase is mainly on account of unbilled revenue which moved from Rs. 1,561 Million as at March 31,2022 to Rs. 2,229 Million as at March 31, 2023.

13. DEFERRED TAX ASSETS/LIABILITIES (DTA/DTL)

(Rs. in million)

Particulars As at March 31, 2023 As at March 31, 2022
Deferred Tax Assets (138) (138)
Deferred Tax Liabilities 397 809

Deferred tax assets (DTA) as at March 31, 2023 is same as at March 31, 2022 amounting to Rs. 138 Million.

Deferred tax liability (DTL) as at March 31, 2023 stood at Rs. 397 Million as against Rs. 809 Million as at March 31, 2022. Decrease in deferred tax liability is mainly on account of reversal of DTL on account of cash flow hedges offset by increase in DTL on branch profits.

C. OPERATIONAL ANALYSIS Financial Performance

Particulars FY23 FY22
Rs. million % of Revenue Rs. million % of Revenue
Income
Revenue from operations 80,136 100.0% 65,697 100.0%
Expenses
Employee benefit expenses 45,639 57.0% 36,505 55.6%
Other operating expenses 17,390 21.7% 15,043 22.9%
Depreciation and amortization expenses 2,315 2.9% 2,144 3.3%
Operating profit (EBIT) 14,792 18.5% 12,005 18.3%
Other income 2,080 2.6% 1,524 2.3%
Finance costs 435 0.5% 437 0.7%
Profit before extraordinary items and tax 16,437 20.5% 13,092 19.9%
Extraordinary items - 0.0% - 0.0%
Profit before tax 16,437 20.5% 13,092 19.9%
Tax Expenses 4,696 5.9% 3,486 5.3%
Profit after tax 11,741 14.7% 9,606 14.6%
Minority interest 43 0.1% 36 0.1%
Profit for the year 11,698 14.6% 9,570 14.6%

Revenue from Operations

Our Revenues from operations increased by 22.0% to Rs. 80,136 Million for the year ended March 31,2023 from Rs. 65,697 Million for the year ended March 31, 2022.

Revenue growth in reported terms includes impact of currency fluctuations. We, therefore, additionally report the revenue growth in constant currency terms, which represents the real growth in revenue excluding the impact of currency fluctuations. In USD terms, our revenue from operations increased by 12.4% to $ 990 Million for the year ended March 31,2023 from $ 880 Million for the year ended March 31, 2022. Our revenue from operations for fiscal 2023 in constant currency grew by 15.8%. Also, we crossed a billion dollars in revenue run rate in financial year 2023 with broad based growth across segments.

In terms of project type, revenue from time and material contracts (as a % of total revenue) for the period ended March 31, 2023 stood at 72.1 % as against 69.7 % for

the year ended March 31, 2022 and revenue from fixed price contracts (as a % of total revenue) for the period ended March 31, 2023 stood at 27.9 % as against 30.3 % for the year ended March 31, 2022

Revenue from top 5 customers for the year ended March 31, 2023 stood at 16% (17 % for the year ended March 31, 2022).

Refer "Segment Reporting" section of M&DA for more details on the analysis of segment revenues and profitability.

Employee Benefit expenses

Employee benefit expenses for the year ended March 31, 2023 stood at Rs. 45,639 Million (representing 57% of revenue from operations for such year) as against Rs. 36,505 Million (representing 56% of revenue from operations for such year) for the year ended March 31, 2022. It mainly includes salaries (including overseas staff expenses), share

based payment, staff welfare, contribution to provident fund and gratuity fund.

The increase is mainly on account of increase in headcount to 22,233 as at March 31, 2023 end from 20,861 as at March 31, 2022 end.

The Indian Parliament has approved the Code on Social Security, 2020 which would impact the contributions by the Company towards Provident Fund and Gratuity. The Ministry of Labor and Employment had released draft rules for the Code on Social Security, 2020 on November 13, 2020. The Company will assess the impact and its evaluation after the subject rules are notified and will give appropriate impact in its financial statements in the period in which the Code becomes effective and the related rules to determine the financial impact are published.

Other Operating Expenses

Other operating expenses for the year ended March 31, 2023 stood at Rs. 17,390 Million (representing 22% of revenue from operations for such year) as against Rs. 15,043 Million (representing 23% of revenue from operations for such year) for the year ended March 31, 2022. It mainly

includes subcontracting and component, engineering and technical consultancy fees, cost of computer software, rent and establishment expenses, travelling expenses, legal and professional charges, overheads charges and miscellaneous expenses

The increase in cost is majorly on account of increase in engineering and technical consultancy fees, cost of computer software, travelling expenses, recruitment expenses in line with business growth.

Depreciation and amortization expenses

Depreciation and amortization expenses for the year ended March 31,2023 stood at Rs. 2,315 Million (representing 2.9% of revenue from operations for such year) as against Rs. 2,144 Million (representing 3.3% of revenue from operations for such year) for the year ended March 31, 2022.

Out of total expense, expense pertaining to depreciation on right of use assets (as per IND AS 116 accounting) for the year ended March 31, 2023 stood at Rs. 941 Million as against Rs. 919 Million for the year ended March 31, 2022.

Other Income

Other income for the year ended March 31,2023 stood at Rs. 2,080 million as against Rs. 1,524 million for the year ended March 31,2022. It mainly includes below:

Particulars Year ended 31-03-2023 Year ended 31-03-2022
Interest Received* 876 492
Foreign exchange gain (net) 728 905
Net gain/(loss) on sale of investment 425 302
Miscellaneous income 121 148
Gain/(loss) from mutual fund investments (measured at fair value through profit and loss) (68) (8)
Profit/(loss) on sales of fixed asset (2) 5
Export incentive - (320)
Total 2,080 1,524

 

*Interest income includes interest earned and accrued interest on account of investment in various instruments such as commercial papei fixed deposits, Non-convertible debentures etc.

The increase in other income is on account of increase in interest income due to investment of surplus cash, reversal of export incentive in FY 2022 on account of change in policy, offset by reduced gains due to currency movements.

Finance costs

Finance costs for the year ended March 31, 2023 stood at Rs. 435 Million as against Rs. 437 Million for the year ended March 31, 2022. It mainly includes interest on bill discounting and interest on lease liability accounted as per IND AS 116.

Tax expenses

Tax expenses comprise of current tax and deferred tax.

Current income tax is the amount expected to be paid to the tax authorities in accordance with the applicable tax laws in relevant jurisdictions. Deferred income tax reflects the impact of timing differences between taxable income and accounting income.

Current tax expenses for the year ended March 31, 2023 stood at Rs. 4,561 Million as against Rs. 3,572 Million for the year ended March 31, 2022.

Deferred tax expenses for the year ended March 31, 2023 stood at Rs. 135 Million as against credit of Rs. 86 Million for the year ended March 31, 2022.

Particulars Year ended March 31, 2023 Year ended March 31, 2022
Profit before tax 16,437 13,092
Tax expense 4,696 3,486
Effective tax rate 28.6% 26.6%

Effective tax rate for the year ended March 31, 2023 is higher on account of conclusion of certain past year assessments in current year.

Profit attributable to equity shareholders

Profit attributable to equity shareholders for the year ended March 31, 2023 stood at Rs. 11,698 Million as against Rs. 9,570 for the year ended March 31, 2022. Growth in profit attributable to equity shareholders is in line with revenue growth.

Earnings per share

Earnings per equity share is computed by dividing the net profit attributable to the equity holders of the Company by the weighted average numbers of the equity shares outstanding during the period.

Basic EPS before extraordinary items has increased by 21.9% to Rs. 110.8 per share for the year ended March 31, 2023 from Rs. 90.9 per share for the year ended March 31, 2022.

Diluted EPS before extraordinary items has increased by 21.8% to Rs. 110.5 per share for the year ended March 31, 2023 from Rs. 90.7 per share for the year ended March 31, 2022.

D. CASH FLOWS AND DIVIDEND Cash Flow

Summary of cash flow statement is as under:

Particulars As at March 31, 2023 As at March 31, 2022
Net cash flow (used in)/from operating activities 13,051 10,062
Net cash flow (used in)/from investing activities (5,718) (4,483)
Net cash flow (used in)/from financing activities (4,435) (4,982)
Net (decrease) / increase in cash and cash equivalents 2,898 597
Cash and cash equivalents at beginning of the period 2,374 1,777
Cash and cash equivalents at end of the period 5,272 2,374

Net cash flow (used in)/from operating activities

For period ended March 31, 2023, net cash flow from operating activities stood at Rs. 13,051, consisting of profit before tax of Rs. 16,437 Million, adjusted for depreciation and amortization, interest income, finance cost, investment income, bad debts, employee stock option cost etc. of Rs. 2,472 Million and cash used in net working capital of Rs. 1,188 Million and cash used to pay taxes (net of refund), which was Rs. 4,670 Million.

For period ended March 31, 2022, net cash flow from operating activities stood at Rs. 10,062 Million as at the year ended March 31, 2022, consisting of profit before tax of Rs. 13,092 Million, adjusted for depreciation and amortization, interest income, finance cost, investment income, bad debts, employee stock option cost etc. of Rs. 1,985 Million and cash used in net working capital of Rs. 1,452 Million and cash used to pay taxes (net of refund), which was Rs. 3,563 Million.

Net cash flow (used in)/from investing activities

For period ended March 31, 2023, net cash used in investing activities stood at Rs. 5,718 Million.

This primarily includes net increase in current/non-current investments which includes mutual funds, certificate of deposits, commercial papers etc. of Rs. 7,875 Million, net purchase of property, plant, equipment, and intangibles of Rs. 1,726 Million, partially offset by deposits matured/having maturity less than 3 months of Rs. 2,857 Million and income received from investments including interest income of Rs. 1,026 Million.

For period ended March 31, 2022, net cash used in investing activities stood at Rs. 4,483 Million.

This primarily includes increase in deposits of Rs. 3,743 Million, net purchase of property, plant, equipment, and intangibles of Rs. 1,555 Million, partially offset by net decrease in current/non-current investments of Rs. 350 Million and income received from investments including interest income of Rs. 465 Million.

Net cash flow (used in)/from financing activities

For period ended March 31, 2023, net cash used in financing activities stood at Rs. 4,435 Million. This primarily includes dividend payments of Rs. 3,167 Million, payment pertaining to lease liability of Rs. 833 Million and

interest payments (including interest on lease liability) of Rs. 435 Million.

For period ended March 31,2022, net cash used in financing activities stood at Rs. 4,982 Million. This primarily includes dividend payments of Rs. 3,633 Million, payment pertaining to lease liability of Rs. 913 Million, interest payments (including interest on lease liability) of Rs. 437 Million and proceeds from issue of equity share capital of Rs. 1 Million.

Dividend

The Company declares and pays dividends in Indian rupees (INR). Companies are required to pay/distribute dividend after deducting applicable withholding income taxes. The remittance of dividends outside India is governed by Indian law on foreign exchange and is also subject to withholding tax at applicable rates.

The Board of Directors of the Company has recommended the final dividend of Rs. 30 per equity share for the year ended March 31, 2023 (Previous Year Rs. 15 per equity share), subject to approval by the shareholders at the forthcoming annual general meeting. The total final dividend payment is expected to be Rs. 3,168 million.

For the year ended March 31, 2023, Dividend per share for the year was Rs. 45 which includes interim dividend of Rs. 15 and recommended final dividend of Rs. 30. This translates to a dividend payout of 41% for year ended March 31, 2023 and the highest payout so far.

For the year ended March 31, 2022, Dividend per share for the year was Rs. 35 which includes interim dividend of Rs. 20 and final dividend of Rs. 15. This translates to a dividend payout of 39% for year ended March 31, 2022.

E. KEY FINANCIAL RATIOS (CONSOLIDATED)

Ratio FY23 FY22
Days Sales Outstanding (in days) 79 94
Interest Coverage Ratio NA NA
Current Ratio 3.4 3.1
Debt Equity Ratio NA NA
Operating Profit Margin (%) 18.5% 18.3%
Net Profit Margin (%) 14.6% 14.6%
Return on Net Worth (%) 26% 25%

Explanations for changes in ratios:

1. Days Sales Outstanding for the year ended March 31, 2023 went down to 79 days as compared to 94 days for the year March 31, 2022, on account of consistent efforts in collection. This led to only a 2% increase in Trade receivables as at March 31, 2023, compared to March 31, 2022, whereas Revenue increased by 22% in FY23

2. I nterest Coverage ratio & Debt Equity ratio are not relevant metrics for the Company as it does not have any debt.

3. Operating profit margin increased to 18.5% in FY23 compared to 18.3% in FY22 primarily on account of better quality of revenue & measures taken to increase operational efficiencies.

4. Net profit margin was stable at 14.6% in FY23 as compared to 14.6% in FY22

5. Return on Net Worth for the year ended March 31, 2023 increased to 26% on account of higher Profit for the year at Rs. 11,698 Million as compared to Rs. 9,570 Million for the year ended March 31, 2022.

F. SEGMENT REPORTING (CONSOLIDATED)

Our segmental reporting comprises business and geographic segmentation.

Business Segmentation

LTTS operates in five industry segments namely Transportation, Telecom & Hi-Tech, Industrial Products, Plant engineering, Medical devices.

Graphical representation of reportable segments contribution to revenue is as under:

Transportation

Transportation segment is our largest segment by revenue and contributed 34.6% of the companys total revenue in FY23 vs 32.0% of the total revenue in FY22. Transportation revenue grew by 32% in FY23 and showed an improvement in operating margin from 18.9% in FY22 to 19.4% in FY23. Increase in operating margin is due to quality of revenue, operational efficiencies and scale benefits.

Telecom & Hi-Tech

Telecom segment is the second largest segment. The segment has contributed 19.4% of the companys total revenue in FY23 vs 21.4% of the total revenue in FY22. Telecom revenue grew by 10.8% in FY23. The operating margin of this segment has decreased to 12.4% in FY23 from 12.9% in FY22. This decrease in operating margin is due to impact of certain one-time investments made in the area.

Industrial Products

The Industrial Products segment is the third largest segment and has contributed 19.0% of the companys total revenue in FY23 vs 19.4% of the total revenue in FY22. The segment has shown an uptick in revenue by 19.5% in FY23. The operating margin of this segment has improved from 29.6% in FY22 to 29.8% in FY23. This increase in operating margin is due to operational efficiencies.

Plant Engineering

Plant Engineering contributed 16.0% of the companys total revenue in FY23 vs 15.4% of the total revenue in FY22. The segment has shown a 26.2% growth in revenue in FY23. The operating margin of this segment

has increased from 24.9% in FY22 to 27.0% in FY23. Increase in operating margin is due to quality of revenue and operational efficiencies.

Medical Devices

Medical Devices segment is the smallest segment and contributed 11.0% of the companys total revenue in FY23 whereas in FY22 it was 11.8%. The segment has shown a 13.7% growth in revenue in FY23. The operating margin of this segment has improved from 32.0% in FY22 to 32.5% in FY23. Increase in operating margin is due to quality of revenue & operational efficiencies.

The following table shows a breakdown of our revenue by our business segments for the periods indicated:

Particulars FY23 FY22
Rs. million % of Revenue Rs. million % of Revenue
Transportation 27,705 34.6% 20,991 32.0%
Telecom and Hi-Tech 15,559 19.4% 14,042 21.4%
Industrial Products 15,257 19.0% 12,766 19.4%
Plant Engineering 12,795 16.0% 10,141 15.4%
Medical Devices 8,820 11.0% 7,757 11.8%
Total Operating Revenue 80,136 100.0% 65,697 100.0%

Further, the segment wise operating profits as a percentage to respective segment revenue has been depicted below for the periods indicated:

Geographical Segmentation

We present our revenues by client billed location, irrespective of the location of the headquarters of the client or the location of the delivery Centre where the work is performed.

North America continued to dominate by contributing 62.2% of the total revenue. Contribution from Europe was 16.2%, from India it was 13.8% while Rest of the World contributed 7.8% of total revenue.

Graphical representation of revenue contribution from geographies is as under: